Ridgecrest City Council heard a stark and sobering review of the city's financial status by its independent auditor at Wednesday's council meeting.

The prognosis: The city faces a bleak outlook in overall expenditures to revenue.

Kenneth Pun from Pun & McGeady, the city's contracted auditor, highlighted several changes in the fiscal year 2011-2012.

Pun indicated Ridgecrest's general fund had an unassigned deficit of $4.3 million at the close of FY 2012, in no small part due to a $4.2 million loan against the Wastewater fund.

In short, the city was in a bind as far as contingency funds when Pun pointed out the city's "rainy day" fund suffered a drought.

"The city really has nothing reserved at all as of this point," Pun said.

Pun pointed out that the city suffered from a negative 37 percent limbo in reserves, whereas the recommended safety net was 5 to 10 percent. This is based on the overall negative balance of $4.3 million to total expenditures of $11.5 million in general fund expenditures.

Last year, the city had $10.67 million in general fund expenditures and a negative deficit of $614,000

In 2007, the reserve stood at $2 million. Over the subsequent five years, steadily dropped that reserve.

At the end of the 2012 fiscal year, the general fund only had $7,600 in cash.

The previous sitting city council, at a Sept. 19 council meeting, had to shift money around to close the year-end 2012 books.

Between the general fund, the streets fund, solid waste and RDA Housing funds, the city faced a cash deficit of $1.32 million at the end of FY 2012. At the Sept. 19 council meeting, the city authorized transfers totaling $709,513 from four internal service funds — used for overhead and capital purchases for various departments — that was otherwise sitting idle in the city's accounts.

In addition, that council borrowed $174,755 from the Wastewater Fund and $405,299 from street funds for a total of just over $580,000 to help complete the balancing the general fund.

Topping the cake was a bump in the costs of unfunded liabilities to the city's Public Employees Retirement System.

Pun detailed that at the outset of Jan. 1, 2011, the city had a total liability of $918,000, but lagged far behind in completely funding it. Based on latest estimates, the city only funded $319,000, or 35 percent, of the costs.

It faces $600,000 in unfunded retirement liabilities in the future.

In questioning Pun, Mayor Dan Clark asked how the auditing firm came up with a reserve of 5 to 10 percent.

"Those recommendations are based on at least two months of expenditures," Pun answered. So for a city with a budget of $10 million, $500,000 at the minimum would be needed to cover two months, bare bones expenditures.

Mayor Pro Tem Jason Patin said in looking at the annual financial report, it was a wake-up call in what the city needed to do.

Page 2 of 2 - "Sooner or later in our next budget cycle, we need to get there," he said. "If tough decisions were made properly, it is feasible to aim for a goal of 5 or 10 percent reserve."

The public expressed concern about the matter.

Jim Fallgatter urged the city council to inform the public on when it would take action, stating the community looked toward it for leadership.

Patin put forth that sooner or later the council would begin the budget hearings, and if it were up to him, he'd jump on it the next day.

Former councilman Jerry Taylor brought up the reminder that he had called for review of and action on the budget back in September 2012, and pointed out the concerning issues of declining revenue to increased expenditures.

"You seriously need to schedule budget hearings as soon as possible, if nothing else in terms of direction," he said. "In terms of setting goals, that's what you can do as full council."